Will The Initial Post-Pandemic Rebound In Inflation Persist?

At the high end, annual inflation will reach nearly 3.5% in May. Compared with recent history, that’s a dramatic increase. Note, too, that all three forecasts show the revival in annual inflation peaking in May and turning lower in June. That’s a clue for wondering if the near-term rebound in inflation has legs. The crucial question: Will the upcoming bounce fade and return to the low-flation trend that prevailed before the pandemic?

Some forecasters predict that the $1.9 trillion stimulus/relief package that was approved in Washington last week will soon trigger higher, sustainable inflation rates. The pushback is that the forces that have been driving inflation lower in recent decades (aging workforce, new technologies, etc.) aren’t going away and so inflation, beyond the near-term bump, will likely stay moderate.

This much is clear: the higher inflation numbers over the next several months will be noise for deciding if higher, sustainable inflation is coming – or not. The key test will be how CPI and other inflation metrics fare in the second half of 2021.

Meantime, brace yourself for substantially higher annual inflation rates over the next several months.

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Disclosures: None.

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